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American Regionalism and Global Free Trade

  • Edward E. Leamer

A free trade agreement supports global free trade since trade barriers tend to divert trade in favor of members, but not reduce imports. The term: 'mutual assured deterrence' is used to refer to a regional free trade association that has the feature that no member can gain individually from the imposition of a barrier against a non- member. Mutual assured deterrence is shown to be possible for a surprisingly rich set of partners. A customs union is compatible with global free trade if the vast majority of trade takes place naturally within the confines of the association. A customs union that is likely to have this property would combine countries to form a nearly exact economic replica of the globe. The economic combination of Mexico and the United States doesn't form a replica of the global economy because, compared with Asia, North America has relatively high capital per worker even after adding the Mexican workforce. However, NAFTA does seem to have the property of mutual assured deterrence, and may for that reason amount to a commitment to global free trade as well as regional free trade.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4753.

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Date of creation: May 1994
Date of revision:
Handle: RePEc:nbr:nberwo:4753
Note: ITI
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  1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  2. Junichi Goto & Koichi Hamada, 1993. "Economic Preconditions for the Asian Regional Integration," Discussion Paper Series 31, Research Institute for Economics & Business Administration, Kobe University.
  3. Deepak Lal, 1993. "Trade Blocs and Multilateral Free Trade," UCLA Economics Working Papers 697, UCLA Department of Economics.
  4. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
  5. Goto, J. & Hamada, K., 1993. "Economic Preconditions for the Asian Regional Integration," Papers 685, Yale - Economic Growth Center.
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